The UCL After In Re Tobacco II Cases -- Are We Right Back Where We Started?

    Let's review briefly for those who haven't had the privilege of dancing in the UCL mosh pit:

     Long ago, there was California's Unfair Competition Law, or "UCL," which allowed any person to bring suit seeking an injunction or other equitable relief against any business engaged in a business practice that was unlawful, unfair or fraudulent.  It mattered not whether the plaintiff had ever himself been victimized by the business practice.  Indeed, it mattered not whether the plaintiff had ever set foot in the defendant business's premises.  The UCL deputized every citizen of California as a bounty hunter private attorney general.

    In the 1990s, UCL suits mushroomed (or at least, so it seemed), and the law was often used to enforce compliance with technical requirements of consumer protection laws that various industries hadn't paid much attention to.  Plaintiff attorneys would target industry practices and cut a swath through those industries, creating some angry, and fairly well-financed, industry groups. 

    Then, a law partnership known as the Trevor Law Group overreached, and started using the UCL to shake down small mom and pop, recent immigrant-owned dry cleaners and other businesses, and became the poster child for UCL abuse.  And when California business organizations floated a ballot initiative, Proposition 64, to scale back the use of the UCL, it caught fire, winning handily in 2004.

    Proposition 64 eliminated citizen suits under the UCL except by plaintiffs who had suffered "injury in fact " and "lost money or property as a result" of the unfair business practice in question.  The idea, clearly, was to eliminate the use of nominal plaintiffs who had no business relationship with, had never done business with, and had never been harmed by, the defendant businesses.

    Before and after Proposition 64, a UCL action could be the basis for a class suit.  As amended by Proposition 64, the UCL provides that:

"[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 [i.e., has suffered injury in fact, lost money or property, etc.] and complies with section 382 of the Code of Civil Procedure [California's class action statute.]"

    So, just who is it that has to have standing?  The class representative or all the class members?  According to today's 4-3 opinion by the Cal Supremes ( In Re Tobacco II Cases (May 17, 2009) ___Cal.4th___ (S147345)), only the class representative has to have standing.  Class members who otherwise qualify for membership don't have to have suffered injury in fact, and don't have to have lost money or property as a result of the predicate act.

    In a concurring (slightly) but dissenting (mostly) opinion, Justice Baxter has, in my view, the better argument:

Even if the majority's holding has some sympathetic appeal on the particular facts alleged here, the rule the majority announces will apply equally to less egregious cases, where it invites the very kinds of mischief Proposition 64 was intended to curtail. . . .[T]he majority's erroneous determination . . .turns class action law upside down and contravenes the initiative measure's plain intent.

    How much of a difference will this ruling make?  Conceiveably a big difference.  To the extent a UCL action seeks injunctive relief, it seems to matter little whether there is one plaintiff or a class of plaintiffs. 

    On the other hand, the UCL also allows restitution -- the restoration of funds or property wrongfully taken by another.  And the restitution sought here, apparently, will be the money class members paid for their cigarettes.  The opinion makes it clear there will be a much relaxed standards for class members seeking resitution in class action UCL cases.  Justice Baxter seems to believe that the majority's ruling will allow

restitutionary relief on behalf of all California smokers who simply saw or heard such ads during the period at issue, regardless of whether false claims contained in those ads had anything to do with any class member's decision to buy and smoke cigarettes.

    Consider this:  As it allows both injunctive relief and other equitable relief as appropriate, the UCL likely allows rescission in an appropriate case.  So imagine a scenario where an automobile manufacturer carries on an extensive fraudulent advertising campaign.  Can rescission be obtained by a class of persons who bought the car and saw or heard an ad, even if there is no evidence that the ad had anything to do with the purchase?

    Looks a lot like the same kind of mischief we saw before.  Only time will tell.

Comments

[Mark from LA]

If corporations would stop engaging in illegal and/or deceptive advertising campaigns in an effort to extract money from consumers who would not purchase without such advertising (let's face it, that's why corporations spend billions on advertising every year), they wouldn't be complaining. The fact is they want to be able to say whatever they want - truth be damned - in their ads, while being immunized from suit based on such false advertising.

The California Supreme Court got it right in its opinion, both as a matter of law (which is what really matters), and as a matter of policy. Corporations can protect themselves from being sued by altering their deceptive advertising practices.

[Jaime Klein]

I usually try to avoid turning the comments section of CBL into a debating society between myself and readers, and like most bloggers, I appreciate all comments, including those from Mark from LA's. But I can't let this one go by without a response.

The last thing I am going to do is defend the tobacco industry (which I have never represented) or its advertising history. But the idea that what is wrong with the UCL can be fixed just by having corporations comply with the law shows a misunderstanding of how the UCL was working (or not working) in California. And the problem was more systemic than the abuses of the Trevor Law Group.

Here's an example: In the lead-up to Proposition 64, most of Calfornia's new car dealers were sued under the UCL in the coordinated Automobile Advertising Cases. Dealers who advertised lease terms were under attack by non-customer plaintiffs for such violations as failing to disclose in newspaper advertisements that a lease transaction was a lease transaction, whether or not a security deposit was required, or the charge per mile for mileage in excess of the limit stated. Dealers who advertise credit terms faced litigation for similar transgressions.

Don't get me wrong, these advertising requirements were all legally required, and the dealers should have been more mindful of compliance. And I do not for a moment question the motives of the lawyers who prosecuted these cases.

But at a minimum, it is open to debate whether these kinds of technical mistakes warrant the transfer of hundreds of thousands of dollars (or perhaps more, I lost track) in settlement payments from the businesses to the bounty hunters and their lawyers, and the expenditure of nearly as much in defense attorney fees, all in cases where the defendants were, at worst, sloppy advertisers, and where there was never any evidence that the named plaintiffs -- or anyone else -- had been injured by these violations.

Few doubt that business needs to be regulated. The policy debate is whether this kind of litigation is the way to achieve the regulation.